Set off
Contractual set-off
Where each party to a transaction owes the other they may agree that, instead of making separate payments, the party due to make the larger payment should simply pay the difference.
Equitable set-off
This is available to a debtor whose cross-claim arises from the same transaction (or a closely related transaction) as the original debt. Under this device a debtor simply deducts his claim from the debt he owes and tenders any balance to the creditor. The sums in question must be due or, if representing unliquidated damages, ma good faith and reasonable assessment of the loss.
Banker’s set-off
This arises where a customer has multiple bank accounts some of which are in debit and some in credit. It is also known as the combination of accounts. It is arguably available in any situation where one party has multiple accounts with another.
Insolvency set-off
The mandatory rules of insolvency set-off are cannot be varied by agreement. In an insolvency, account must be taken of the mutual dealings between the creditor and the bankrupt. Sums due from one must be set off against the sums due from the other, except that sums due from the bankrupt cannot be included if when incurred the creditor had notice of:
- a resolution or petition to wind-up (if a company);
- an application for an administration order or of notice of intention to appoint an administrator (if a company); or
- a pending bankruptcy petition (if a natural person).
All claims, including future, contingent and unliquidated sums, must be brought into account.